TaxTMI 
TaxTMI 
2010 (11) TMI 32
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....erty and leasing are covered by field assigned to State legislature and, thus, outside the purview of the Central Legislature. 3. In the reply filed on behalf of the Union of India, stand taken is that renting of property was different from sale of goods or transfer of property or conveyance. The transaction is not covered by tax on sale of goods. Providing of service with respect to property was covered by service tax. Other similar transactions of service in relation to property were service of Mandap Keepers (Section 65(105) (m), Pandal Shamiana (Section 65 (105) (zzw), Convention Service (Section 65 (105) (zc), Right to use properties for business purposes under business support service (Section 65 (105) (zzzq). The levy was not covered under Entry 18 not being tax on land or building but only on service element. The tax was connected with land or building but was not on land or building. The levy was also not covered under Entry 45 being not land revenue nor by Entry 49 which contemplated direct tax. Service tax was on consideration received for allowing use of the premises. Under Article 246(1), Parliament had exclusive power to make laws in respect of matters covered unde....
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.... question of validity of notification and circular to recover service tax from the lessors of property on the proceeds of renting out of property. After the said judgment, by way of amendment, instead of service in relation to renting of immovable property, the legislature has substituted expression of providing service "of renting of immoveable property." After the amendment, renting of immoveable property itself was a service covered by the definition of taxable service. Levy of tax on property did not exclude levy of tax on service in relation to property. A tax on one aspect of subject matter did not exclude tax on another aspect of the same subject matter. In view of this settled legal position, there was no conflict in tax covered by Entry 49 List II and tax covered by Entry 92C of List I. 8. Service tax is chargeable under the provisions of Finance Act, 1994. Section 66 provides for levy of service tax on taxable service as defined under Section 65(105) read with the definition of such services under different clauses of Section 65. In the present case, the taxable service is covered by Section 65(105) (zzzz) which refers to service provided "by renting of immoveable prop....
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.... service provider. As per words "in relation to", service was to be provided in relation to renting of property and the property by itself could not be regarded as service. Renting of property did not involve any value addition. It was accordingly held that notification dated 22.5.2007 and circular dated 4.1.2008 providing for service tax on renting of property per se was ultravires the scheme of levy of service tax. By way of amendment, even renting of immovable property itself was covered by the definition of "taxable service" instead of service "in relation to renting of property". The amendment was made retrospective which amounted to tax service provider and not service recipient as service provider could not recover the service rendered from the recipient of the service for the period prior to the amendment. 11. Issue of interpretation of taxing entries under the Constitution of India including the aspect theory have been gone into in our recent judgment dated 25.10.2010 in CWP No.10992 of 2010 (Tata Sky Limited v. State of Punjab and another) in the context of contention of validity of entertainment duty by State Legislature with reference to Entry 62 of List II as being ....
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.... in power of a particular legislature in one aspect and purpose may fall within the legislative power of the another in other aspect and purpose. Such overlapping is not considered to be overlapping in law as the same transaction may involve two or more events in different aspects. Overlapping does not detract from distinctness of the aspects. The aspect theory, however, cannot be applied to justify encroachment in legislative fields. 13. Some of the leading judgments on the subject are M/s Hochst Pharmaceuticals Ltd. and another Vs. State of Bihar and others AIR 1983 SC 1019, Godfrey Phillips India Ltd. and another Vs. State of U.P. and others (2005) 2 SCC 515, Bharat Sanchar Nigam Ltd. and another Vs. Union of India and others (2006) 3 SCC 1 and State of W.B. v. Kesoram Industries Ltd.,(2004) 10 SCC 201. 14. We may extract observations from Kesoram Industries: "31. Article 245 of the Constitution is the fountain source of legislative power. It provides - subject to the provisions of this Constitution, Parliament may make laws for the whol....
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....tter for purposes of legislative competence. There is a distinction made between general subjects of legislation and taxation. The general subjects of legislation are dealt with in one group of entries and power of taxation in a separate group. The power to tax cannot be deduced from a general legislative entry as an ancillary power. (4) The entries in the lists being merely topics or fields of legislation, they must receive a liberal construction inspired by a broad and generous spirit and not in a narrow pedantic sense. The words and expressions employed in drafting the entries must be given the widest-possible interpretation. This is because, to quote V. Ramaswami, J., the allocation of the subjects to the lists is not by way of scientific or logical definition but by way of a mere simplex enumeratio of broad categories. A power to legislate as to the principal matter specifically mentioned in the entry shall also include within its expanse the legislations touching incidental and ancillary matters. (5) Where the legislative competence of the legislature of any State is questi....
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....d substance the impugned tax is a tax within the domain of the Federal Legislature, the levy of tax would not be liable to be struck down. The test laid down in Sir Byramjee Jeejeebhoy case, AIR 1940 Bom 65 by the Full Bench of the Bombay High Court was approved. 44. In Asstt. Commr. of Urban Land Tax v. Buckingham and Carnatic Co. Ltd. (1969) 2 SCC 55 for the purpose of attracting the applicability of Entry 49 in List II, so as to cover the impugned levy of tax on lands and buildings, the Constitution Bench laid down twin tests, namely: (i) that such tax is directly imposed on lands and buildings, and (ii) that it bears a definite relation to it. Once these tests were satisfied, it was open for the State Legislature, for the purpose of levying tax, to adopt the annual value or the capital value of the lands and buildings for determining the incidence of tax. Merely, on account of such methodology having been adopted, the State Legislature cannot be accused of having encroached upon Entry 86, 87 or 88 of List I. Entry 86 in List I proceeds on the principle of aggregation and tax is imposed on the totality of the value of all the assets.....
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....hands of the States and financial experts. The interpretation of entries can afford to strike a balance, or at least try to remove imbalance, so far as it can. Any conscious whittling down of the powers of the State can be guarded against by the courts. "Let it be said that the federalism in the Indian Constitution is not a matter of administrative convenience, but one of principle - the outcome of our own historical process and a recognition of the ground realities." (SCC p. 217, para 276) Quoting from Setalvad, M.C.: Tagore Law Lectures, " Union and State Relations under the Indian Constitution" (Eastern Law House, Calcutta, 1974), Jeevan Reddy, J. observed: (SCC p. 217, para 276) "It is enough to note that our Constitution has certainly a bias towards Centre vis-à-vis the States.... It is equally necessary to emphasise that courts should be careful not to upset the delicately crafted constitutional scheme by a process of interpretation." Xx xx xx xx In a nutshell 129. The relevant principles culled out from the preceding discussion are ....
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....y finding out the pith and substance of the legislation? and Three - Having determined the field of legislation wherein the impugned legislation falls by applying the doctrine of pith and substance, can an incidental trenching upon another field of legislation be ignored? (8) The primary object and the essential purpose of legislation must be distinguished from its ultimate or incidental results or consequences, for determining the character of the levy. A levy essentially in the nature of a tax and within the power of the State Legislature cannot be annulled as unconstitutional merely because it may have an effect on the price of the commodity. A State legislation, which makes provisions for levying a cess, whether by way of tax to augment the revenue resources of the State or by way of fee to render services as quid pro quo but without any intention of regulating and controlling the subject of the levy, cannot be said to have encroached upon the field of "regulation and control" belonging to the Central Government by reason of the inciden....
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....the Union. Taxes on mineral rights, a subject in Entry 50 of List II, can also not be levied by the Union though as stated in Entry 50 itself the Union may impose limitations on the power of the State and such limitations, if any, imposed by Parliament by law relating to mineral development to that extent shall circumscribe the States' power to legislate. Power to tax mineral rights is with the States; the power to lay down limitations on exercise of such power, in the interest of regulation, development or control, as the case may be, is with the Union. This is the result achieved by homogeneous reading of Entry 50 in List II and Entries 52 and 54 in List I. So long as a tax or fee on mineral rights remains in pith and substance a tax for augmenting the revenue resources of the State or a fee for rendering services by the State and it does not impinge upon regulation of mines and mineral development or upon control of industry by the Central Government, it is not unconstitutional." The Aspect Theory 15. Aspect theory has been subject matter of several decisions. In Federation of Hotel &....
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....nments", to decide upon the meaning of division of powers. The court is this body. 29. The position in the present case assumes a slightly different complexion. It is not any part of the petitioners' case that "expenditure tax" is one of the taxes within the States' power or that it is a forbidden field for the Union Parliament. On the contrary, it is not disputed that a law imposing "expenditure tax" is well within the legislative competence of Union Parliament under Article 248 read with Entry 97 of List I. But the specific contention is that the particular impost under the impugned law, having regard to its nature and incidents, is really not an "expenditure tax" at all as it does not accord with the economists' notion of such a tax. That is one limb of the argument. The other is that the law is, in pith and substance, really one imposing a tax on luxuries or on the price paid for the sale of goods. The crucial questions, therefore, are whether the economists' concept of such a tax qualifies and conditions the legislative power and, more importantly, whether "expenditure" laid out on what may be assumed to be "luxurie....
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....ct imposts. If in fact they overlap, that may be because the taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time on the occasion of its sale...." 32. Referring to the "aspect" doctrine Laskin's Canadian Constitutional Law states: "The 'aspect' doctrine bears some resemblance to those just noted but, unlike them, deals not with what the 'matter' is but with what it 'comes within'.... (p. 115) ... it applies where some of the constitutive elements about whose combination the statute is concerned (that is, they are its 'matter'), are a kind most often met with in connection with one class of subjects and others are of a kind mostly dealt with in connection with another. As in the case of a pocket gadget compactly assembling knife blade, screwdriver, fishscaler, nailfile, etc., a description of it must mention everything but in characterizing it the particular use proposed to be m....
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....tax on each activity undertaken by a chartered accountant/cost accountant or an architect. The cost accountant/chartered accountant/architect charges his client for advice or for auditing of accounts. Similarly, a cost accountant charges his client for advice as well as doing the work of costing. For each transaction or contract, the chartered accountant/cost accountant renders profession based services. The activity undertaken by the chartered accountant or the cost accountant or an architect has two aspects. From the point of view of the chartered accountant/cost accountant it is an activity undertaken by him based on his performance and skill. But from the point of view of his client, the chartered accountant/cost accountant is his service provider. It is a tax on "services". The activity undertaken by the chartered accountant or cost accountant is similar to saleable or marketable commodities produced by the assessee and cleared by the assessee for home consumption under the Central Excise Act. Xx xx xxx xxx 43. As stated above, every entry in the Lists has to be given a schematic interp....
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.... professions, trades, callings, etc. Therefore, Entry 60 of List II and Entries 92-C/97 of List I operate in different spheres. Xx xxx xxxx 46. In International Tourist Corpn. v. State of Haryana (1981) 2 SCC 318, the appellants were transport operators. The State of Haryana levied a tax on passengers and goods under the Haryana Passengers and Goods Taxation Act, 1952. The appellants questioned the vires of Section 3 (3) insofar as the levy of tax on passengers and carriage of goods by their vehicles plying along the national highways. It was urged on behalf of the appellants that there was nothing in the Constitution to prevent Parliament from combining its power to legislate with respect to any matters enumerated in Entries 1 to 96 of List I with its power to legislate under Entry 97 of List I and, if so, then the power to legislate with respect to tax on passengers and goods carried on national highways was within the exclusive legislative competence of Parliament and, therefore, Section 3(3) of the Haryana Passengers and Goods Taxation Act, 1952 was beyond the legislative competen....
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....mbuja Cements Ltd. v. Union of India, (2005) 4 SCC 214, it was held that service tax is not a tax on goods or on passengers but it was on the transportation itself and, therefore, it falls under residuary power of Parliament under Entry 97 of the Seventh Schedule to the Constitution. It was further held that service tax is not a levy on passengers or goods but on the event of service in connection with the carriage of goods and, therefore, it was not possible to hold that the Act was in pith and substance within the State's exclusive powers under Entry 56 of List II. It was held that service tax came within Entry 97 of List I. In the present case, as stated above, we are concerned with Entry 60 of List II. As stated above, service tax is on performance based services itself. It is on professional advice, tax planning, auditing, costing, etc. On each of the exercise undertaken tax becomes payable. Therefore, the above judgment has no application." 12. In the light of above discussion, we may now consider the rival contentions in the present case. 13. By way of Finance Act, 1994, concept of service tax was introduced. The said tax is destination based consumption tax being ....
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....ally not concerned with the division of interest or ownership in the units of lands or buildings which are brought to tax. Tax on lands and buildings is directly imposed on lands and buildings, and bears a definite relation to it. Tax on the capital value of assets bears no definable relation to lands and buildings which may form a component of the total assets of the assessee. By legislation in exercise of powers under Entry 86, List I tax is contemplated to be levied on the value of the assets. For the purpose of levying tax under Entry 49, List II the State Legislature may adopt for determining the incidence of tax the annual or the capital value of the lands and buildings. But the adoption of the annual or capital value of lands and buildings for determining tax liability will not, in our Judgment, make the fields of legislation under the two entries overlapping." 17. Apart from the above, following observations in Assistant Commissioner of Urban Land Tax v.The Buckingham and Carnatic Co. Limited, (1969) 2 SCC 55 were also noticed:- "The basis of taxation under the two entries is quite distinct. As regards Entry 86 of List I the basis of the taxation is the capital value of ....
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....nd buildings separately as units. (2) The tax cannot be a tax on totality, i.e., it is not a composite tax on the value of all lands and buildings. (3) The tax is not concerned with the division of interest in the building or land. In other words, it is not concerned whether one person owns or occupies it or two or more persons own or occupy it. 75. In short, the tax under Entry 49, List II, is not a personal tax but a tax on property." 18. Reference may also be made to the following principles of interpretation in the context of Canadian Constitution referred in the said judgment:- "In determining the validity of a Dominion Act, the first question to be determined is, whether the Act falls within any of the classes of subjects, enumerated in Section 92, and assigned exclusively to the Legislatures of the provinces. If it does, then the further question will arise, whether the subject of the Act does not also fall within one of the enumerated classes of subjects in Section 91, and....
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....was further provided by the introduction of Article 268-A in the Constitution vide the Constitution (Eighty-eighth Amendment) Act, 2003 which stated that taxes on services shall be charged by the Central Government and appropriated between the Union Government and the States. Simultaneously, a new Entry 92-C was also introduced in the Union List for the levy of service tax. As stated above, as an economic concept, there is no distinction between the consumption of goods and consumption of services as both satisfy human needs. It is this economic concept based on the legal principle of equivalence which now stands incorporated in the Constitution vide the Constitution (Eighty-eighth Amendment) Act, 2003. Further, it is important to note, that "service tax" is a value added tax which in turn is a general tax which applies to all commercial activities involving production of goods and provision of services. Moreover, VAT is a consumption tax as it is borne by the client." Distinguishing the service tax from professional tax, it was observed:- "35. For each contract, tax is levied under the Finance Acts, 1994 and 1998. Tax cannot be levied ....
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....n, (1971) 2 SCC 779 this Court approved the principle laid down in S.C. Nawn case, AIR 1969 SC 59 as well as Nazareth case (1970) 1 SCC 749. In Bhagwan Dass Jain v. Union of India, (1981) 2 SCC 135 this Court made a distinction between the levy on income from house property which would be an income tax, and the levy on house property itself which would be referable to Entry 49 List II. It is, therefore, not possible to accept Mr. Krishnamurthy Iyer's submission and that a cess on royalty cannot possibly be said to be a tax or an impost on land. Mr. Nariman is right that royalty which is indirectly connected with land, cannot be said to be a tax directly on land as a unit. In this connection, reference may be made to the differentiation made to the different types of taxes for instance, one being professional tax and entertainment tax. In the Western India Theatres Ltd. v. Cantonment Board, Poona Cantonment, AIR 1959 SC 582, it was held that an entertainment tax is dependent upon whether there would or would not be a show in a cinema house. If there is no show, there is no tax. It cannot be a tax on profession or calling. Professional tax does not depend on the exercise of one&#....
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....i Fateh Chand v. Union of India, (1983) 3 SCC 529, it was observed:- "32. The next point to be considered is whether the imposition and collection of penalty with retrospective effect amounts to an imposition of an unreasonable restriction on the fundamental right of the petitioners to own property and to carry on business guaranteed under Article 19(1)(f) and (g) of the Constitution. We have already indicated above the circumstances under which it became necessary to levy penalties with retrospective effect and to validate all the proceedings relating to levy of penalties and recovery thereof. The scope of the power of a legislature to make a law validating the levy of a tax or a duty retrospectively was considered by this court in Chhotabhai Jethabhai Patel & Co. v. Union of India, AIR 1962 SC 1006. The court held that Parliament acting within its legislative field had the power and could by law both prospectively and retrospectively levy excise duty under the Central Excises and Salt Act, 1944 even where it was established that by reason of the retrospective effect being given to the law, the assessees were incapable of passing....